Recession or No, (and Probably No) Companies in Good Shape
Fitch Ratings says there are noticeable differences that negate recession red flags.
“If we're in the sixth inning, we have our sluggers coming to bat.” That was Warren Buffet this week telling CNBC that there was “no question” that the economy is strong. It’s a good thing because there are indicators out there that suggest the economy is at a tipping point. According to some, the expansion that started in 2009 is way past its sell-by date. That is, since expansions usually last around five years or so, this latest one is on borrowed time.
And according to Fitch Ratings, the credit cycle is elderly and default rates are low, which in the past meant that a recession was around the corner. On top of this China is slowing. However, Fitch says, there are “notable differences” this time around and in any case, companies could handle whatever comes.
One reason is that the US Federal Reserve loan officer survey continues to show easing standards for large and middle-market firms, whereas credit was starting to tighten in the later stages of the previous two credit cycles. In addition, the US high-yield distressed yield ratio stands today at just over 4% and has remained below 10% since the fourth-quarter 2016. Read more here.
Also this week, May was a banner month for stock repurchases, driven in large part by one company: Apple. According to Birinyi Associates, there were 107 new repurchase authorizations made in May for a total of $176.8 billion. The firm said “a significant portion” of May’s total value was Apple’s announcement of $100 billion in planned repurchases. “This announcement was the single largest share repurchase authorization ever,” Birinyi said in its June 4 bulletin. Read more here.
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